Back in May we covered increased support for our customers by showing off our new Debt Snowball Calculator, and how it works perfectly in tandem with our new Budget Calculator. The bottom line gist of the blog covering these new services was how to pay off credit card debt quickly while not panicking by answering a mailer for a predatory loan.
The concept of snowball payments is nothing new. In fact, there is a Wikipedia page covering the general concept, and blogs from NerdWallet and Dave Ramsey cover the topic pretty well. What is more difficult than simply using a calculator is understanding the life events that led up to this point, and when you apply for a credit debt relief program, which is where the Snowball Calculator steps in. Here is some context, in case you are struggling to put the next steps in place.
When Debt is Getting Out of Control
There are some tried and true concepts to keep in mind when it comes to the budget vs debt balance. For example, your monthly rent should never exceed more than 50 percent of your monthly income. This is because even though it seems like the 1-to-1 ratio of debt to income seems more than safe, you haven’t yet paid all utility bills, bought groceries, filled up your gas tank multiple times, or gone out to dinner or the movies with friends. Repeatedly over-extending yourself for these types of activities, due to a higher-than-comfortable proportion of income going to rent, can lead to a situation where you will have to pare down unnecessary amenities when you wouldn’t normally have to. Keep in mind; sometimes car payments can be just as problematic as rent in this scenario.
If you just skimmed over the above paragraph because you have rent under control, you may be over-extended due to troubles understanding spending patterns and your credit card interest cycles. If this sounds more like you, you aren’t alone. Taylor and Francis Online details compulsive buying disorder in detail here, in case you feel like you might match the systems of this debilitating issue.
For whatever reason, you have arrived at the place where you are ready to waive the white flag or throw your hands up. Before contacting professionals for help, below is one last way to avoid it.
Debt Snowball Payment Method is Next Step
Time to get organized. Understand your total monthly debt commitments. The most responsible way to do this is to create an Excel Spreadsheet of your debts. Once you have a handle on all expenses, drop them into a Debt Calculator to make sure you have everything accounted for. Determining a total monthly debt amount is the first piece to attacking this debt monster.
The Debt Snowball Payment method is on the way, after comparing your budget to your debt. Here is a short explanation of the Snowball Payment method, in case you skipped everything we so carefully wrote all the way up until now:
Here is an excellent example from IGG Systems of the format for this payment method:
If you are a visual learner, Golden Financial Services founder Paul also put together this quick video on how to use the Golden FS calculator. Check this out:
What to Expect in the Months Ahead
We covered ways to cut spending without the need for additional income in a recent blog, in case you are now armed with new insight but haven’t worked out how to make snowball payments possible.
Now that you have discovered Debt Snowball payments, you will start paying down your smallest debt amount first, which will lead to a small emergency fund cash flow. If you can refrain from spending this, you will eventually pay off one debt at a time, until you are debt free.
When you reach this stage, you should start looking more closely at your credit score. You may find that your score has increased, but there may still be line items on your record that can be disputed and removed.